According to Bernanke, the Fed chief, the economic outlook continues to remain bleak and though there will not be any rate cuts, Fed will continue fighting the current crisis using all its tools.
He went on to say that even though the credit markets will start limping back to normal due to boosting of lending by the government, the weakness in the economic sector will continue for some time. He also said there was so much uncertainty due to the fact that it is impossible to judge the duration of the turmoil. Bernanke was addressing a group of business leaders in Texas.
He hinted at fierce and aggressive steps resembling the recent help to the commercial paper market and the $600 billion bailout of Freddie Mac and Fannie Mae. Bernanke said cutting of rates may not be actually the most effective method to tackle this crisis right now.
With the drastic downfall of the financial situation globally, Fed’s key fund rates were cut down to 1 percent which is its all time low rate in the month of October. A report from the Department of Labor points out that inflation tends to rise with rate cuts. However there is a scope for Federal Reserve to play around with the interest rates due to the falling prices. The report also points out that since October 2007, Core inflation is at its lowest now.
According to Bernanke, though there is a possibility for further reduction in the benchmark rate of the Fed, there is nothing much left for the Central Bank to trim.